Tuesday, January 28, 2020

Grain prices eased further over the past week for a few reasons. The weather in South America is cooperating, so analysts are raising their yield estimates. The coronavirus is turning into a negative for many markets, including commodities in general.

Brazil needs regular rains because of their courser soils, especially in the main growing state of Mato Grosso. That has been happening lately, and these rains are coming at a critical time, as they are in full flowering and pod fill stages now.

The coronavirus is spreading more rapidly than many thought it would, especially in China where it originated. The world is a global community, so the spread to other countries is hard to contain. It adds uncertainty, which usually causes markets to retreat.

Soybeans prices have been the weakest through January. Despite the signing of Phase 1 of the trade deal, China has not stepped up their soybean imports from the US in the past few weeks. Traditionally, they buy most of their beans from South America after their harvest, which is getting closer.

Soybeans are down 70 cents since the start of the month. Corn has dropped 10 cents/bu in Jan, while wheat has gained 13 cents. The divergence in crop prices is a bit unusual. Hopefully the wheat strength will support the other crops going forward.

Even though soybean export sales have been disappointing lately, actual exports this crop year are up 23 percent from a year ago. However, last year’s sales were weak because of the trade war. Corn exports since Sept. 1 are down 53 percent compared to a year ago.

The spreads (difference between the futures months prices) are tightening in corn. This is usually positive for price direction. Corn basis is also stronger than normal for this time of year. Both of these conditions are an indicator of strong demand for the cash product.

There is major deflation in energy futures. Crude oil hit 65.40/barrel on Jan 8, but fell to 52.13 by Jan 27, for a nearly 19 percent drop. Natural gas is down 37 percent since Nov. and is near a 4-year low and not far from a 20 year low.

The low energy prices will keep inflation in check, which should prevent interest rates from rising. It is also a positive for economic growth, as people and companies have more dollars left over to spend on other things if they spend less on energy.